Brazilian Markets wobble over Bolsonaro’s funding of program for poor

Brazilian Markets wobble over Bolsonaro’s funding of program for poor. Brazil’s president hit back on Tuesday at accusations his government is using accounting tricks to fund another base income program for the poor without breaking its spending top.

Jair Bolsonaro launched his charm offensive as Brazilian markets wobbled for a second day on fears the spending spree shows he is reluctant to rein in record deficits and debt.

Bolsonaro’s administration announced that paying for the “Renda Cidada” program – which implies Citizen Income in Portuguese – will include an accounting maneuver that allows the government to tap into 55 billion reais ($9.7bn) in the budget earmarked for future court-ordered debt payments to businesses and people, and money set aside for education.

Brazilian stocks and the currency fell, while interest rates futures increased as investors viewed it as an accounting trick not to break the spending roof fueled by populist, political motives. Markets failed to recover any ground on Tuesday.

Bolsonaro also pleaded with markets for constructive suggestions instead of criticism, pointing out that “everyone” – including financial markets – will suffer if the economic crisis worsens. “In the event that Brazil is bad, everyone is bad. Brazil is one. In the event that it has problems, everyone suffers. Market people won’t have any income, either,” Bolsonaro said outside his official residence in Brasilia Tuesday.

“We obviously want to be on good terms with everyone. But I ask you, it would be ideal if you help with suggestions, not criticism. At the point when you do criticize someone, it ought not be the president,” he said.

Earlier, Bolsonaro took to social media to counter criticism he is pushing the plan with an eye on the 2022 presidential election while stressing fiscal discipline and the spending top are the “rails of the economy”.

“My government seeks to anticipate the serious social problems that may emerge in 2021 if nothing is done to meet the needs of all these people who have lost everything, or almost everything,” he wrote on his social media sites.

Alongside Economy Minister Paulo Guedes on Monday, Bolsonaro announced Renda Cidada would be an extension and expansion of the current welfare transfer program for the poor known as Bolsa Familia, or Family Purse.

Emily Weis, developing market strategist at State Street in Boston, noted the pandemic has exposed some of the administration’s “vulnerabilities”, particularly between the market-friendly Guedes and the more populist Bolsonaro.

“It’s a very scarcely discernible difference to walk – providing fiscal support where needed,” Weis said. “But at some point, it comes to the next stage of the arrangement, and how would we pay for this? And what does it mean for debt sustainability?” Weis said. “That risk will extend into next year.”

Source: Reuters

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